Court Clerk: That's SJC-13166,
Dhananjay Patel and others v. 7-11 Inc. and others.
-: [Chief Justice Budd] All right.
Attorney Liss-Riordan.
-: [Shannon Liss-Riordan] Yes.
Good morning, your honors.
May it please the Court I'm Shannon Liss-Riordan.
I represent the Plaintiffs in this case.
What the defendant, 7-11, is trying to do here
is they are asking you to upend,
15 years of SJC precedent,
which has repeatedly recognized
that individuals classified as franchisees,
may actually be employees,
under Massachuset's wage laws.
-: [Justice Wendlands] Well, if it's so clear,
why, why is this a certified question?
-: Well. that's a good...
That's a good question. -: I assume the judges
on the first circuit are, are smart.
And, and, if there's 15 years
of established SJC precedent,
as you just said,
why did they certify this to us?
-: [Shannon Liss-Riordan] Well, I'll explain that
because the exact argument
that 7-11 has made here,
that there's a conflict between 148B
and the franchise rule,
has not been specifically addressed
in the written opinions of the SJC.
But if you look at arguments
that have been made to the SJC,
which we cited to you in our briefing,
this argument has been made in the past
and was not adopted by the SJC.
So both in the Coverall, 2006 unemployment case,
and the Debuante case,
the argument was made
that this ABC test simply can't apply to franchisees
and they cited the franchise rule too.
But the SGC itself,
didn't talk about the franchise rule
in either of those cases
and, and went off on, on other grounds.
So I think that's why
the first circuit, decided it should be addressed
and talked about in an actual decision.
But the argument itself has been rejected
and the consequences are, are vast.
If 7-11 gets its way here
and allows the classification
of workers as too, as franchisees
to be an end run around the wage laws,
every industry, in the Commonwealth,
is going to start renaming their employees, franchisees.
And we've already seen this
happening in a number of industries.
We're seeing it happening with trucking companies,
shuttle services, gas station employees,
and even Uber and Lyft,
who have been challenged,
multiple times, in multiple places,
for misclassifying their drivers,
as independent contractors, have talked
about using a quote "franchisee model" so that
they can continue avoiding- Justice Lowy: I get
a little Nervous, sometimes,
when both sides say, if,
if you rule the other way,
the sky is absolutely going to fall down.
-: [Shannon Liss-Riordan] Yes.
So I'm actually the franchise industry,
the international franchise association,
represented by, Mr. Leon, here,
has repeatedly said in cases, both to this court
and other appellate courts around the Country,
that the sky is going to fall,
if the regular test for distinguishing employees
from independent contractors is applied to franchisees.
That has been rejected in, in California,
in Pennsylvania, in Connecticut, in Mississippi
and the sky hasn't fallen,
and the franchise industry has continued
to thrive in Massachusetts,
even since 2006, that first decision
where a franchisee was held, by the SJC,
to be an employee under a modified ABC test,
and under, under the unemployment statute.
And interestingly, the case that, the company
that was the defendant in two of the cases
that's been before this court,
Coverall North America, was ruled years ago,
to have been misclassifying cleaning workers,
as franchisees, and as,
as defendant has explained in a letter to you,
Cov- and as we cited in our reply brief,
Cover-all is still operating in Massachusetts,
but apparently that's operating with employees,
having its cleaning workers, be employees,
which is exactly the right answer here,
because these co- companies...
Justice Kafker: Can I cut you off for one second?
-: [Shannon Liss-Riordan] Yes.
Justice Kafker: So I,
I agree with you that,
that this is kind of oversimplified,
to take them out of just
because it's a franchise agreement,
you can apply the ABC.
But I don't understand
how the ABC test is gonna apply here.
Take- let me give you a hypothetical.
I'm a franchisee and I'm not, you know,
I'm not a little ma and pa franchisee.
I own 12 Dunkin donuts franchises.
Am I an employee?
-: [Shannon Liss-Riordan] Well, Let me-
-: 'Cause it seems kind of silly.
It seems complicated-
I understand
the people working in the Dunkin donuts store are convert.
They're employed by somebody.
They probably are employed by the franchisee.
I'm just, I find
that the easy part is what you're fighting over.
The harder part is what are we going to do?
How is it going to work in this world?
-: [Shannon Liss-Riordan] Well, well,
I can tell, I can tell you,
exactly how it's going to work.
The ABC Test is flexible enough,
so that we are not saying
that all franchisees are employees,
if you apply the ABC Test.
So a couple things, first of all, as,
as the FTC had said in it to Amicus Brief here-
Justice Kafker: So, so take my hypothetically-
-: Yeah, yes I will.
So for those Dunkin donuts employees,
you look at the prongs, A, B and C, right?
Justice Kafker: Mmm-hmm.
-: On the control issue, there are franchisors,
who only exert a certain amount of control.
They, um, they provide the, umm
the, the trademark, the, um, they say,
what products to offer.
They give basic operational assistance.
They don't give detailed control
over what actually happens into the store,
such that they are the ones under prong B,
who are actually running the business.
Now 7-11 is unlike traditional franchisors.
So 7-11 goes much further than, than,
than what I just stated.
7-11 is so involved in the business of the stores
that our argument and this isn't before you,
but just to illustrate for you-
Justice Kafker: Okay, but...
Let me Again, I'd like you to try to deal.
And also you're talking very close to microphone,
so you're creating an echo-
-: [Shannon Liss-Riordan] Sorry about that.
-: but I'm just trying to understand
how it's going to work.
'Cause it seems like there's,
like last month, your, one of your colleagues
argued the joint employer issue,
which we haven't resolved it,
but it seems like we've got joint employer issues
and other things it's just,
this is much more complicated
than an all or nothing rule.
And I'm just, again,
I got, I own ten, I own ten, 7-11s,
and I don't work in any of those stores,
but they have all kinds of rules about,
am I an employee when I own ten of those 7-11 stores?
Wha- I mean franchises?
-: [Shannon Liss-Riordan] It depends on the facts.
And it depends on how -
Justice Kafker: Even though I don't work,
at all in the stores.
-: Well, so a couple of things.
One thing, I mean,
that may be a factor that the court
or a jury looks at, in determining the ABC factors.
The ABC factors are flexible enough,
so that they can be applied to the situations.
The question is under prong A,
how much control is the franchise
or alleged employer actually exerting over use?
So are you running your own independent business
or is it, really,
that you're working as a manager for this company,
that enough in, in truth is really running the business?
So that's, that's why Pong A and Prong B,
do sometimes sort of seep into each other.
I mean, they're independent prongs,
but Prong A looks at how much control,
and like I just said, a lot of franchisors,
do not exert the level of control
that 7-11 does.
And that's what we would go back
and argue with the district court.
Under prong B, the question is,
who is, what, what is the business?
Are the alleged employee and employ-
alleged employer actually in the same business
or a different business.
And I think that
that turns a lot on
whether the franchisor is actually
running the stores.
So here,
what we have in our record, is that 7-11,
doesn't just provide operational business advice.
It controls the flow of money...
(microphone humming) trying to stand back...
Justice Kafker: Is your microphone against the thing?
It may be reverberating. -: Let's try that.
Is that better?
Okay.
7-11 controls the bank accounts
that the customer revenue goes into, unlike...
So typical franchisor gives this operational advice..
-: [Justice Wendlands] Counsel, I'm sorry to interrupt,
but for, Justice Kafker's ah, hypothetical-
-: Yes.
-: Is that franchisee providing services
That is the gating issue of the ABC Test?
You seem answer his question
by going right into the three prongs
and I'm asking you,
is that franchisee providing services?
-: [Shannon Liss-Riordan] Yeah, well, yes.
I mean, that will be a fact question
in each case, but yes, the franchisee,
the way 7-11 is set up...
-: [Justice Wendlands] No, no, no.
In the sort of Dunkin donuts hypothetical.
-: [Shannon Liss-Riordan] Well, I don't Know
the facts of Dunkin Donuts.
-: No, and I don't either,
but I, as I understand the hypothetical,
I am Dunkin Donuts Corporate
and I have a franchise Z
that let's say is Kafker LLC.
And you know, and then
Kafker hires all these employees,
to work at at the, at the particular Dunkin Donuts,
let's say there are ten of them, is that, is,
is Kafker LLC providing a service?
-: [Shannon Liss-Riordan] I mean, it, it, it
may be it's really a managerial service.
So in the Coverall cases-
-: [Justice Wendlands] Dunkin' Donuts Corporate?
-: Excuse me. Yeah, it could, it could be.
Again, I don't know the facts of Dunkin donuts, but if-
-: [Justice Wendlands] In this hypothetical,
we, will you call it,
you know, let's just not call it Dunkin Donuts,
Let's call it Wendlands LLC.
-: [Justice Wendlands] Well, I'd like to call it
Coverall because that was a company
that was before this court twice.
So one of the arguments
that Coverall made repeatedly was
that its franchisees had a whole lot of employees
that argument was specifically made and rejected.
The federal court still held the ABC Test applied.
And essentially-
Justice Kafker: Although again,
but Cover-
With Coverall, they were really,
sort of individual janitors-
-: [Shannon Liss Riordan] Some of them were.
-: There not- -: [Shannon Liss-Riordan] A lot
Justice Kafker: And again- -: lot of them
-: had extensive franchises
with a whole host of people
working under them.
And Coverall argued, "Oh, those franchisees can't be
employees. Look, they themselves have employees,"
but actually these franchisees
were effectively working as managers for Coverall.
So in other words,
7-11 franchisees or Dunkin Donuts franchisees,
perhaps, um, may very well be working as managers.
And, and in fact here 7-11 has corporate owned stores.
Justice Kafker: Managers tend not to have,
you know, profits, you know,
they don't, they, you know,
managers, you know, they get bonuses,
but they're,
but they're have employment relationships.
This is different because
there's, you know,
there's a business being run here.
I just, the,
I understand, and I'm very sympathetic
to the little guy who's working in all these stores.
That's an employee.
That's why I find this global argument,
very troubling that they're all taken out
because that just seems wrong.
But I also have very little sympathy for your argument
if we're converting entrepreneurs into employees,
particularly when we're talking about people
who own multiple franchisees.
-: [Shannon Liss-Riordan] Okay.
Yeah.
So first of all, there's,
they're fact-based questions in here
that would go back to the district court to be determined.
But secondly, a number of these franchisees are sole...
They don't have multiple stores,
some of the plaintiffs here do,
but there are most of 7-11 franchisees,
have one store.
Justice Kafker: Let's do an actual one.
Give us the one who has the most stores.
Tell us, tell us about that person.
-: [Shannon Liss-Riordan] There were some franchisees
who have multiple stores
and they are essentially
running around managing the stores.
They have employees who work at the stores.
They're getting daily emails from 7-11.
That that goes to a 7-11 email address,
telling them what they should do,
what items they should take off the shelf,
what they should put on the shelf,
all these new promotions and policies.
Justice Kafker: Do they tell person who to hire
and how many hours they should work
and, and control their paycheck?
or does the actual franchisee
operate as the employer in those cases?
-: [Justice Wendlands] So the, so, okay, so, so
a couple of things,
one way that employers are trying
to get out of claiming that their workers
are their employees is by saying
that they're not controlling their hours.
That is not under the ABC Test.
That is not an indication of
whether someone is an employee or not.
There are plenty of employees
who can work whatever hours they want.
What, what you see in these situations
with both franchisors and it's,
it is kind of similar to the
joint employment issue that,
that you heard about in the Credit co Case,
which is that employers are figuring out
so many ways to do an end run,
around the wage laws.
And they're setting up what David Wilde calls,
these fissured workplace schedules set systems
that includes joint employment issues,
as well as franchise arrangements
to make it look like the big employer on top,
who really is running the show,
is not responsible for complying
with the wage laws,
for the franchisees
or the people who are under them.
So it's, those are related issues.
But I also want, I can,
I could go on and on about
how this fits with your hypothetical,
Justice Kafker, but I want to emphasize
what I was trying to say before.
7-11 is different from most franchisors,
most franchisors take something like a 4-7% fee
in exchange for giving this operational support.
7-11, not only controls the bank accounts,
but it takes half of the revenue.
It's designated half of the revenue
as the franchisee's and half as its own.
And then has the franchisees pay for all of the,
the operations of the store...
-: [Justice Wendlands] So counsel...
Finish your sentence.
-: Yeah, yes.
I mean,
if you can have a very similar arrangement
where the employee is being paid,
based on how well the business profits.
Okay, and that happens all the time
in employment relationships,
but here the, the mere fact
that their pay depends on
how well the store is doing
that could be,
that, that's how employment payments-
Justice Cypher: I think we understand that.
And I don't want to oversimplify
justice Kafker's question.
-: [Shannon Liss-Riordan] Yes.
-: But my understanding of what we're answering,
here today, is whether the statute can be applied,
not whether it will be applied, is that correct?
-: [Shannon Liss-Riordan] Yeah, yes.
Exactly-
-: And that will depend heavily on the facts
and circumstances of each case,
whether it applies?
-: [Shannon Liss-Riordan] Correct.
What 7-11 is asking for
is just a global carve-out,
which is a legislative choice,
which has not been made by our legislature.
In fact, the international franchise association,
which Mr. Leon was involved in,
tried to get that carve-out from the legislature
and the legislature didn't do it.
They're also trying to do in California,
California legislature said, no.
The Ninth Circuit said in Vasquez versus Janpro,
"no", there's no exception
in our state law for franchises.
Apply the ABC Test to a franchise situation.
Even in 7-11, the Ninth Circuit,
in the case of Hit yon versus 7-11,
reversed, a dismissal of a misclassification claim
and remanded for consideration.
Now that California,
had adopted Massachusetts ABC test,
it went back for trial.
The court didn't apply the ABC Test,
the cases back on appeal.
But the point is, is that
the Ninth Circuit also agreed,
specifically with respect to 7-11,
we have an ABC Test,
go, go apply it.
So 7-11 is asking this court
to make a legislative choice.
Legislature has not chosen to do.
It will not end franchising and Massachusetts
as it hasn't for the last 16 years.
Should the ABC Test be applied, here.
Massachusetts has the strongest-
-: [Justice Wendlands] We're at the end of your time.
So I thank you.
And we're going to hear from attorney,
Leon at this time.
-: Thank you, your honors.
-: [Justice Wendlands] Thank you.
Norman Leon: Good morning.
May it please the court.
Uh, your honors,
before addressing council's comments,
there were two quick points I wanted to make
to try to frame the issue before the court
and to hopefully explain why we believe
that the answer to the certified question,
needs to be no.
The first, is that no one,
not the plaintiffs, not the FTC
or the AIG has explained,
how is this possible
for any franchisor to pass the ABC Test?
Justice Cypher: Can I ask
you a question counsel?
if we adopted your position,
would we be overruling, um the,
the, two the,
I forget the...
Coverall case and the Manel case?
Would those be overruled?
Norman Leon: No, not at all, your honor.
No, -: Why not?
Norman Leon: No decision from this court
has ever specifically addressed
the application of the ABC Test
to franchise businesses.
I know that the plaintiffs
and there Amicus take that position,
but if you look at the cases,
they're quite clear that they didn't address it.
The closest this court ever came
was in Debutante, where it addressed
the implications of the Lanham Act
and how that impacted franchise businesses.
But this court actually made clear,
there, in footnote 14, that quote,
"we neither analyze the elements necessary
to maintain a claim under GL chapter 149,
section 148B nor consider the application
of the statute to franchise arrangements,
such as the one here."
So there is no guiding law on that,
which is precisely why the
first circuit certified
the question to this court.
The second point I wanted to make,
was that no one, not the plaintiffs, not the FTC,
not the AG, has explained how any masters,
how any franchisor,
doing business in Massachusetts,
can stay in business, if they're deemed
an employer because under governing law,
under Awooha and Sebago, the franchise fees,
most of the initial and ongoing fees
that franchisors depend on
and that the Commonwealth taxes
are against public policy and void.
The record here is undisputed
and clear that that is a 100% of the revenue
that franchisors rely on- -: [Chief Justice Budd] Isn't
that about applying the test,
not about whether the test should be applied?
Isn't that? I mean, isn't that,
isn't the argument you're making
that 7-11 should not be found to be an employer?
That doesn't really answer the question
as to whether or not
we should be applying the test at all.
Norman Leon: I think, your honor,
the fact that no franchisor can pass
the test and that no franchisor
can exist financially, if the test applies,
underscores and proves conclusively,
why the test cannot be applied to franchise businesses.
There may be another test.
Justice Kafker: That can't be right
because we've already had
the Georgia Court of Appeals say
that you can survive the test.
Applying Massachusetts law, right?
So somebody survived it.
Norman Leon: That's it,
that's actually incorrect, Your Honor,
I know that's a position
that the plaintiff's take,
but the Georgia court of Appeals
decision involving the Janpro case, 2011 court decision
that court determined that Janpro
passed the test only
because the Janpro system was devised
as a three tier system, they held
that there was no control
and that the franchisee was in
a different course of business
than the franchisor,
because the only direct commercial relationship
that existed in
that case was the one
between the franchisee and the master franchisee.
There was no relationship,
at all, between Janpro and the franchisee,
who claimed they had been misclassified.
This court rejected
that very reasoning two years later,
in the Debutante Case when it ruled
that no direct relationship was required
to sustain a claim under the wage act.
Justice Kafker: Yeah, I, I
I've read the case.
I don't read it your way,
but I don't want to debate that.
But how about the fact that the FTC,
I take it, the First Circuit
didn't have the benefit of the,
the FTCs own interpretation of this rule, right?
Norman Leon: There was no brief filed
by the FTC before the First Circuit,
but I don't believe
that its view impacts the question
before the court for a couple of reasons...
Justice Kafker: The thing
they're saying
it's a disclosure rule and that's all it is.
And it, they're saying it doesn't interfere
with the ABC rule...
Can I ask more, particularly.
Take my hypothetical?
'Cause I'm worried about
all the employees of these places.
I'm not worried about.
I'm not worried about the guy
who owns 10 stores.
I'm worried about, all those people working,
you know, there.
And you know, again,
we're not just talking about
the 7-11 store where the franchisee is
sitting in the store, 24 hours a day.
We're talking about all of these relationships.
If we adopt your rule, right?
Every franchisor is outside of the Wage Act,
that all the people work in,
these places is outside of it, right?
Norman Leon: No, not at all.
Your Honor- -: So tell me how...
Norman Leon: I'm sorry.. -: Explain that.
Norman Leon: The only people
that we're talking about, today are the ones
that you discussed in your hypothetical.
The people that own the franchises,
the person that owns the 12 Dunkin donuts
or the six, 7-11s.
This has nothing to do
with the people that work for them, and I think
that's an important- Justice Kafker: So how are
they protected, if, if this is a true
franchise arrangement and their employees
in these places,
how are they protected under the Wage Laws?
That's where I'm confused.
Norman Leon: The employees of the franchise,
franchisees themselves, of course,
still have the protections of the Wage Laws.
The franchisees themselves,
our point is, should not
have the protections of the Wage Laws
because they can't be employees.
The test that applies necessarily renders
every- Justice Kafker: Anyone
who works for the franchisee is covered,
but the people, who are the franchisees,
are not Norman Leon: Absolutely,
Justice Kafker: it's not that clear from your briefing...
-: And I apologize if we didn't make that clear,
your Honor, but that's the point
that we're pressing here.
And I think it's an important one to emphasize,
because this case is not about
store clerks being deprived of minimum wage
or deprived breaks or anything like that,
anything, but these plaintiffs are wealthy individuals
that own multiple businesses
and have many employees of their own right.
What this case is about
is an attempt to use the Wage Act.
To have those business owners receive back,
from 7-11 threefold, of course,
as required under the wage act,
all of the expenses that they incurred,
operating their businesses,
including the hundreds of thousands of dollars,
they paid every single year to their own employees.
That's what they're seeking in this case,
the payroll that these business owners pay
to their own employees as damages,
the Wage Act was never intended to produce
such an absurd result. Justice Kafker: Justice
Cypher's question, the one that it,
all this is about,
whether this act applies,
what is your response to her point,
given what you just said there?
Norman Leon: I think the response is
that there is no franchisor
who has ever passed this test.
There is no franchisor that can pass this test.
Every single relationship,
every single franchise relationship,
under law as defined by the FTC rule
and by necessity contains control
as a required element of that relationship.
This court recognized that in the Debutante case,
when it held specifically
that under the Lanham Act- Justice Kafker: Then Why
aren't you joint employers of,
if that's the case, if you need
that much control to be a franchisor,
why aren't you joint employers
of all of these employees
that you say are covered.
Norman Leon: None of these employees
are involved in this case,
your Honor, again,
we're just talking about the franchisees.
Justice Kafker: We got to, you know,
you're asking for a blanket rule
that all franchisees are not employees
because of the control required
in the franchisor rule.
and I'm trying to understand
how this is going to work in the real world.
'Cause, cause you're saying we're going
to blow up all these franchise arrangements,
but you're also saying
the employees are protected.
But if this franchisee is being dictated
by the franchisor,
how they run their employment relationships,
we're running into joint employment issues.
Norman Leon: Well, the cases
that have come out addressing
the joint employment issue and franchise cases,
your Honor, have uniformly held
that the controls
that franchisors need to exercise
to protect their brand
and their marks and their system,
are not endisha of a joint employment relationship.
Every case that has
reached a Marist determination on
that has held that- Justice Kafker: And which
cases are those?
Do you have them handy?
Or are they in your brief somewhere?
Norman Leon: The Salazar versus McDonald's case
from the Ninth Circuit is in our brief, your Honor.
And I'd also cite for you as examples
because they collect a lot of cases,
the In re: Domino's pizza case,
which is 2018, Westlaw 4757944.
And in Re Jimmy John's overtime litigation,
which is 2018, Westlaw 3231273.
So I, the, the underlying issue here,
is that franchising is not some scheme
that has been developed to evade the Wage Act.
That's, that's not how it come, came about.
It's been an existence for over a hundred years.
7-11 has been involved in franchising
for over 50 years.
And the relationship between these parties
is one that is entirely legal
and is entirely compliant with
the detailed statutory scheme
that has put in place to regulate
the sale of franchises.
Nobody disputes that.
The problem with applying the ABC test is
that it renders every franchisor, an employer simply
because they complied with what
that regulatory scheme details.
Justice Lowy: It's not, I'm not sure of that.
That control means exactly the same thing.
Devoid of any factual predicate.
The ABC test talks about
control over the method of performance of Serbs.
And when you look at the definition
of a franchise, it's the control over
the franchisee's method of operation.
And I'm not just, I'm not really sure
those are exactly the same thing,
devoid of any facts.
I think that's, I think that's sort of
as chief Justice Budd,
and Justice Cipher were referencing.
This is just to say
whether in a certain circumstance,
independent contractor law,
whether, whether it's going to apply,
what the result of this case would be,
would require some factual development.
Wouldn't it?
Norman Leon: I don't believe it does your Honor.
Justice Lowy: So you say,
And I know your, your position is
by definition that ABC test, factors every
franchisor / franchisee relationship,
period, end of story.
Norman Leon: Yes, your Honor.
And if it did not, then the plaintiffs
surely would have been able to give this court
one example where it would not
capture a franchisee, but they haven't
because they can't, none exist.
The problem here is really twofold.
As I mentioned, just going back to this court's
holding in Debutante, you start out first,
with a requirement
that every franchise have a license
to use the franchisor's mark,
under the Lanham Act, 15 USC 1064 sub 5
and 15 USC, 1127,
a licencor of a mark and every franchisor
is a licencor of a mark, it's part of
the FTC rule, every licencor
must exercise control over the quality
and nature of the good that a licensee produces
under the licencor's marks
that alone imposes an obligation
on every franchisor to make sure
that the franchisees are producing products
that are of a certain standard.
It's not just there to protect the mark owner.
It's there to protect consumer expectations.
That's the whole purpose of the Lanham act.
It is. - -: [Justice Wendlands] Is that
franchisee using the mark?
Are they providing services?
Going back to my question
to your opposing counsel.
Norman Leon: The district court, held your Honor,
that that was a question of fact, and I think
that the district court got it wrong on that
because the only assertion
that the plaintiffs have made here
about why they provide services to 7-11 is
that they operated a 7-11 store
and paid the equivalent of royalties to 7-11.
If that's the standard,
then of course, every franchisor
is in fact the presumptive employer
of all of its franchisees, not just that,
I would say that every copyright licencor,
and every trademark licencor- -: [Justice Wendlands] And so,
if we decide that that is wrong,
then isn't that the answer to the question
that you find. so puzzling in fact,
you can be a franchisor and,
and still be subject to the ABC test,
if your franchisee is providing services.
Norman Leon: If the F-
if the operation of a franchise location
and the compliance with the obligations
under a franchise agreement,
do not equate to providing services,
then the conflict with the ABC rule
obviously does not come into place
because you never get to the ABC test.
Yes, I would agree with that, your Honor.
-: [Justice Wendlands] Okay.
-: Okay.
Now I did want to address for a few minutes,
some of the positions
that the AG takes in her brief,
and I would submit with respect
that the AG's position, in this case,
is not entitled to deference for a couple of reasons.
First of all, the AG's view,
as to what tests should apply to franchise businesses
is premised on her belief as to what federal laws
and regulations mean.
And it's well settled law
that on matters of federal law and regulation,
over which the AG has no control
and which he does not administer,
her views are not entitled to deference.
And I'd cite for your Honors,- Justice Kafker: But are her
views consistent with the general counsel
or the acting general counsel of the FTC?
Norman Leon: I don't think
that the FTCs views
have anything to do with the arguments
that we're presenting to this court.
And I think it's important, your Honor,
to understand what the FTC rule and what it,
what the FTC rule is and what it is not.
The FTC rule is, as the FTC points out,
just a disclosure regime,
we've never contended otherwise.
And we don't contend
that there was anything in the ICL
that prevents a franchisor from issuing the disclosures
that the FTC rule requires.
So the FTC rule controls the relationship,
what a franchisor needs to do,
to sell a franchise, up until the time
that a franchise agreement is signed.
At that point,
the FTC has no further relationship,
nothing to do with how a franchisor
and a franchisee interact with each other.
So if you viewed the rule in that context,
the FTC is correct
that there is not some
free-floating obligation for a franchisor
to exercise control over its franchisees.
However, the thing
that franchise owners are allowed to sell
by complying with the rule,
the franchise is defined
by the same FTC as a commercial relationship
in which the franchise or exerts,
or has the authority to exert
a significant degree of control
over the franchisee's operations.
That's exactly what the district court held here.
So if that's not a conflict,
I don't know what it is
because I could issue the disclosures,
but to what end I can't sell
what the disclosures are designed to sell.
And if the FTT is taking the position,
frankly, that a franchise means something
other than a commercial relationship in
which the franchisor has to exert a control.
Then his fuse are directly contrary
to the plain meaning of the regulation
is charged with enforcing.
And I would say they should be disregarded
and are entitled to no deference.
I see my time is up.
-: [Justice Wendlands] Okay, thank you.